Additional Guidance for Disclosing Related Entity Expenses

The Department of Revenue has prepared a flowchart to help taxpayers and preparers determine if an addition modification or Schedule RT disclosure is required for expenses paid, accrued, or incurred to related entities.

Additionally, the Department has updated its frequently asked questions (FAQs) on these topics:

Three important issues the new guidance addresses are:

When Pass-Through Entities and Their Members Are "Related Entities"

Wisconsin uses the loss disallowance rules provided in section 267 of the Internal Revenue Code (IRC) to determine if a taxpayer is a "related entity." Section 267(b), IRC, lists relationships which are considered to be "related entities" for Wisconsin purposes. Section 267(e)(6) incorporates section 707(b), IRC, relating to partnerships. Under these sections, Wisconsin would determine that:

How Partnerships and S Corporations Report Addbacks

A partnership or S corporation that has interest or rent expenses paid, accrued, or incurred to a related entity must make a Wisconsin addition modification for those expenses. If the expenses meet the criteria given in Schedule RT, Part II, the partnership or S corporation may make a subtraction modification for the qualifying amount. These modifications must be reported as follows:

When to Disclose "Other Related Entity Expenses" on Schedule RT, Line 4c

The "other expenses" that must be disclosed on line 4c of Schedule RT include any expenses paid, accrued, or incurred to a related entity other than those already listed on lines 1 through 4b. In other words, line 4c of Schedule RT is for related entity expenses which are not for interest, rent, royalties, management and service fees, or inventory purchases.

However, line 4c is only required to be completed if the total "other related entity expenses" deducted on the return for the taxable year exceed 10 percent of the taxpayer's total expenses. In determining whether the expenses exceed 10 percent of total expenses, "total expenses" include the following:

Page last updated March 4, 2009